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POLICY ARENA Building efficiency in agricultural marketing: The long‐run role of BULOG in the Indonesian food economy
Author(s) -
Timmer C. Peter
Publication year - 1997
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/(sici)1099-1328(199701)9:1<133::aid-jid417>3.0.co;2-#
Subject(s) - economics , market system , agricultural marketing , market economy , business , commerce , economy , marketing , marketing management , relationship marketing
Economists know an ideal marketing system when they see one. It contains markets for all commodities and services for all possible time periods. All participants are fully and equally knowledgeable about the state of the world, and can transact complete and costless contracts with each other. This is, of course, the marketing system designed by Arrow and Debreu (1954) to prove the existence of a competitive equilibrium in a market economy. No market economy in the world meets these assumptions. Even the best endowed and competitive systems must confront the reality of incomplete contracts, and hence missing markets, caused by high transactions costs, asymmetric information and moral hazard. But after several centuries of institutional evolution, the rich capitalist countries have created marketing systems that work in ways that Arrow and Debreu would recognize. In these countries, typical market transactions, of which there are billions each day, are low cost and highly efficient in their use of economic resources. Most countries in the developing world, and many transition economies, have not yet created such marketing systems. Especially in their rural economies, many markets are conspicuous by their absence or by very high costs of transacting business. In the poorest countries, or the most backward regions of even the more dynamic economies of the Asian-Pacific countries, rural markets for capital, risk, labour and commodities are highly imperfect or non-existent. Price margins between buyers and sellers of these goods and services are kept large by all the factors that Arrow and Debreu had to assume away in order to analyse the workings of a market economy. Unenforceable contracts mean trade can be conducted only among parties that trust each other for non-economic reasons, such as family or ethnic ties. Risk taking must be internalized within the household or village, sharply limiting the opportunities for economic specialization or adoption of new technology. Expansion of commodity production is limited by very thin local markets, and food security becomes a highly localized matter. Building more efficient and lower-cost rural marketing systems is clearly an essential step toward agricultural modernization and food security. But how is this done? Few societies have the patience to wait several centuries for the evolutionary pressures of economic history to build the systems on their own. After all, the

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